On Sunday, 31 July 2022, the non-custodial market protocol, Aave, announced that the Aave DAO approved a new stablecoin for its ecosystem called the GHO Collateral backed Stablecoin.

The organization behind Aave, Aave Companies, had recently proposed the stablecoin during the first week of July. 

The snapshot for the proposal’s voting began on 28 July 2022 and ended on 31 July 2022. Out of the 1,793 total votes, the proposal was passed. Over 99.99% of the voters voted in favor of the proposal, and over 501K, Aave was spent.

details of  GHO Collateral Backed Stablecoin

Now that the proposal has been passed, it’s up to the DAO to take responsibility for administering the creation of the stablecoin. The next step for the Aave DAO is voting on the genesis parameters of GHO, which Aave will put out through the social media channels and governance forum.

What is the main idea behind the Aave GHO Collateral Backed Stablecoin?

As explained in the GHO introductory blog post published on 7 July 2022, the GHO collateral backed stablecoin will be backed by many digital assets available to users. Borrowers will also earn interest from their underlying collateral as they spend their DHO. 

The blog post further explains that GHO will benefit the DAO community since all interest payments on the GHO loans will be sent to the DAO and administered by the Aave governance.

Aave’s stablecoin will join the stablecoin economy, which is currently valued at around $153 billion with a daily trading volume of around $63 billion. Tether leads the stablecoin pack with $65 billion in market capitalization, closely followed by USD at $54 billion as of 1 August 2022. GHO will also join stablecoins crypto assets that leverage collateralized assets and others that leverage over-collateralization. 

“As a decentralized stablecoin on the Ethereum mainnet, GHO will be created by users (or borrowers)… Correspondingly, when a user repays a borrow position (or is liquidated), the GHO protocol burns that user’s GHO. 

All the interest payments accrued by minters of GHO would be directly transferred to the Aave DAO treasury; rather than the standard reserve factor collected when users borrow other assets,” Aave’s blog post about the stablecoin explains. 

Aave Companies, its community, and how the Aave market protocol is performing

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With a valuation of over $1.46 billion, Aave is ranked 45 among over 13,000 other crypto assets, and despite the ongoing crypto bear market, AAVE has increased by 84.7% during the last month. 

Moreover, it’s the third largest decentralized finance protocol in terms of total value locked as of 1 August 2022. According to Defillama, Aave has $6.59 billion locked as of 31 July 2022. 

In mid-May 2022, Aave also launched a Web3 smart contract-based social medial platform called Lens Protocol which currently has over 50 applications built on top of the Polygon network. 

As far as the GHO stablecoin goes, Aave Companies stated that the Aave DAO had been an integral part of the process providing helpful and informative insights into the development process. 

Some proposed concepts include DAO-set interest rate vulnerabilities, supply caps, a peg stability module and the necessity for adequately vetting potential facilitators. 

While the crypto community is still recovering from the fall of TerraUST, Aave Companies anticipates increased adoption of GHO both within the ecosystem and to other outside platforms.